Legal Entity Identifier System Turns a Corner
Published: July 3, 2014
The global project to assign unique identifiers to parties in financial transactions has turned a corner, bringing the world closer to mapping connections in the financial system and cutting industry costs for cleaning, aggregating, and reporting data.
In the past week, the global Legal Entity Identifier (LEI) system crossed the threshold to move from a start-up initiative to an operational, steady state.
The defining moment was the inaugural meeting of the Board of Directors of the Global Legal Entity Identifier Foundation on June 26 in Zurich, Switzerland. Under the continued oversight of the LEI Regulatory Oversight Committee (ROC), the Foundation will now begin to assume management of LEI operations across the globe.
The Board will direct the construction of the technology infrastructure of the LEI system and ensure adherence to governing principles and standards, including the reliability, quality, and uniqueness of LEIs.
The LEI is like a bar code for identifying entities that engage in financial market transactions. It is a linchpin for making connections in the massive volumes of financial data that course through the international economy every day, and will help companies manage their risk and government regulators analyze data related to financial stability.
Already, early-stage registrars have issued more than 300,000 LEIs in more than 170 countries. The members of the ROC, representing more than 60 public authorities in nearly 40 jurisdictions, agreed unanimously that with the Foundation in place, those identifiers are now full-fledged LEIs that can be used for regulatory reporting around the world. This designation should remove any doubt that this system is delivering permanent codes now.
By careful design, the 16 members of the Foundation Board are from the private sector, bringing to fruition the vision of a public-private partnership governing the LEI system. This manifestation of private-sector involvement promises to spur even broader adoption of the LEI.
The Foundation membership is a demonstration of diversity across the Americas, Europe, Asia, the Middle East and Africa; they work for financial firms, industrial companies, standards organizations, data-consuming firms, and other entities.
As the LEI continues to take hold in the United States and internationally, the LEI system can now become the springboard for further work on understanding and documenting corporate structures, or hierarchies. This effort promises valuable insights into the often complex makeup of legal entities, into how large financial institutions are structured, and into how they are connected to each other.
Matthew Reed is Chief Counsel at the Office of Financial Research and Chairman of the LEI system’s Regulatory Oversight Committee